Share Buybacks Sink For Second Straight Year

GuruFocus
, ContributorOpinions expressed by Forbes Contributors are their own.

According to S&P Dow Jones Indices, companies of the S&P 500 index in the fourth quarter pulled back on their share repurchases by 7.2% from the fourth quarter 2015, although they accelerated 20.6% sequentially.

Companies spent $135.3 billion buying back their shares during the fourth quarter, compared to $112.2 billion from the third quarter and $145.9 billion in the fourth quarter 2015. For the full year, they spent $536.4 billion on buybacks, a decline from $536.4 billion in 2015 and $553.3 billion in 2015 – the first time the index saw two consecutive years of declines since the financial crisis era or 2008 and 2009.

The slowdown comes as the S&P pushed to record highs and companies’ shares became increasingly expensive following the election of President Donald Trump in November. The index gained 8.68% for the year, with a 4.12% climb in the fourth quarter.

"The ability of companies to increase buybacks remains high, as cash declined a tick from last quarter's record level, with money remaining relatively cheap and easily accessible," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

"However, the slowdown since Q1 2016 may indicate that companies do not currently want to increase planned buybacks. Q1 2017 prices are averaging higher, up 6% from Q4 2016 and up 19% from Q1 2016, meaning increased expenditures may be needed to cover the higher share prices to avoid EPS dilution."

Leading buybacks was the health care sector, which accounted for 21.4% of companies’ repurchases, a giant increase from 11.7% in the previous quarter. Allergan (AGN) prevailed among all companies for its $12.3 billion accelerated buyback program.